Full Judgment Text
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CASE NO.:
Appeal (civil) 570 of 2002
PETITIONER:
M/s Virlon Textile Mills Ltd
RESPONDENT:
Commissioner of Central Excise, Mumbai
DATE OF JUDGMENT: 17/04/2007
BENCH:
S. H. Kapadia & B. Sudershan Reddy
JUDGMENT:
J U D G M E N T
with Civil Appeal No. 3237 of 2002
KAPADIA, J.
Civil Appeal No.570 of 2002:
Appellant-M/s Virlon Textile Mills Ltd. is a 100% Export
Oriented Unit (EOU) engaged in the manufacture of Texturised
Polyester Yarn and Dyed Polyester Yarn. The said yarn is sold
against foreign exchange by the appellant in Domestic Tariff
Area (DTA) subject to permission given by the competent
authority under para 9.10(b) of Export and Import Policy
(Exim Policy) 1997-2002. In this civil appeal, the question for
consideration is the rate of duty applicable to sales falling
under para 9.10 (b).
On 4.11.1999 a show cause notice was issued by the
Joint Commissioner of Central Excise, Mumbai to the
appellant stating that the appellant was not paying
appropriate duties on the goods cleared as per the permission
granted by the Development Commissioner. According to the
show cause notice, the appellant had paid Countervailing duty
(CVD) @ 30% on Texturised Polyester Yarn plus Rs. 9 per kg.
on Dyed Polyester Yarn cleared under para 9.10 (b) of Exim
Policy against foreign exchange. According to the show cause
notice, under the proviso to sub-section (1) of Section 3 of the
Central Excise Act, 1944, (the "1944 Act") duty of excise was
leviable on excisable goods produced by 100% EOU and
allowed to be sold in India, equal to the aggregate of the duties
of customs leviable under Section 12 of the Customs Act,
1962, on like goods produced or manufactured outside India if
imported into India, and where the said duty of customs is
chargeable by reference to value; the value of such goods shall
be determined in accordance with the provisions of the
Customs Act, 1962 and the Customs Tariff Act, 1975.
According to the said show cause notice, in the present
matter, on clearance of the said yarns into DTA under para
9.10(b), appellant, being a 100% EOU, was required to pay
duty of excise equal to the aggregate of duties of customs
leviable on such yarns falling under Chapter Sub-Heading
(CSH) 5402.33 of the Customs Tariff Act 1975 as follows:
"A. Basic Customs duty - @ 35% ad valorem.
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B. Additional Duty equal to excise duty
under Section 3 of the Customs Tariff
(also known as Countervailing Duty or
CVD) \026 24% + 6%.
C. Special Additional Duty of Customs
under Sec. 3A of Customs Tariff Act,
1975 - @ 4%.
D. Cess @ 0.05% under Textile Committee
Act, 1963."
According to the show cause notice, the appellant had failed to
pay the duty in respect of clearances of the above yarns under
para 9.10 (b), as indicated hereinabove, and accordingly, it
was asked to pay Rs. 33.58 lacs (rounded off figure) on their
clearances during the period 8.4.1999 to 20.10.1999 falling
during the Exim Policy period 1997-2002.
This demand had been confirmed by all the authorities
and the Tribunal (CEGAT) vide impugned judgment dated
19.10.2001. In the impugned judgment, the Tribunal took the
view that the entire supplies of yarns to DTA against foreign
exchange earned by the appellant was liable to duty payment
on clearance in accordance with the proviso under sub-section
(1) to Section 3 of the 1944 Act equal to the customs duty
leviable under Section 12 of the Customs Act, 1962 on like
goods produced by a manufacturer outside India. In other
words, the Tribunal has upheld the order of the Commissioner
(A). The Tribunal has also rejected the contention raised on
behalf of the appellant saying that even if the supplies of the
yarn under para 9.10(b) was comparable to the DTA sales in
para 9.9 of the said Exim Policy, still the appellant was
entitled to the benefit of exemption under notification No.
2/95-CE dated 4.1.1995. The Tribunal also rejected the
contention of the appellant that, in any event, it was entitled
to exemption under notification No. 53/97-Cus. Dated
3.6.1997. According to the Tribunal, the said notification No.
53/97 exempted specified goods from customs duty which
were imported into India for manufacture of articles for export
out of India or for being used to produce final products for
export in cases where the final products/ articles stood
produced or manufactured by 100% EOU approved by the
Commissioner. According to the Tribunal, para 7 of
notification No. 53/97 was not applicable to the present case
since para 7 applied only to goods (raw materials) which were
imported for the manufacture of articles allowed to be sold in
India on payment of duty under Section 3(1) of the said 1944
Act. According to the Tribunal, para 7 applied only to DTA
sales falling under para 9.9 and it did not apply to DTA sales
(supplies) falling under para 9.10 (b) and if they are equated
still the appellant was not entitled to the benefit, in full, of the
exemption notification no. 2/95-CE. According to the
Tribunal, the appellant was also not entitled to the benefit of
exemption under notification No. 2/95-CE because that
notification was applicable to goods allowed to be sold in India
in accordance with the provisions of para 9.9 of Exim Policy
1997-2002. According to the Tribunal, notification bearing no.
2/95-CE had the effect of fixing a value or the amount of
which 50% of the duty leviable under Section 12 of the
Customs Act, 1962 stood payable. But Section 12 of the
Customs Act, 1962 only applied to goods sold to domestic
tariff at the rate of duty leviable on like goods when imported
into India. According to the Tribunal, in terms of notification
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No. 2/95-CE the rate of duty applicable was 50% of the
amount of duty. According to the Tribunal, the appellant
herein was not entitled to the benefit of exemption under
notification No. 2/95-CE since the goods have not been sold in
DTA in terms of para 9.9. The Tribunal came to the conclusion
that, there was no merit in the contention of the appellant that
even supplies made to DTA against payment in foreign
exchange should be counted towards fulfilment of export
obligations and, therefore, all sales made to DTA whether
against payment in foreign exchange or payment in rupees
should be treated as DTA sales and, in that event, the
assessee-appellant would also be entitled to the benefit of
exemption notification No. 2/95-CE.
In this matter, appellant seeks equation of para 9.10 (b)
sales with para 9.9 sales for the purposes of claiming benefit
of exemption under notification No. 2/95-CE which has been
denied by the Tribunal. Hence this civil appeal.
We quote hereinbelow Section 3(1) of the Central Excise
Act, 1944:
"SECTION 3. Duties specified in the
Schedule to the Central Excise Tariff
Act, 1985 to be levied. \027 (1) There shall be
levied and collected in such manner as may
be prescribed duties of excise on all excisable
goods which are produced or manufactured in
India as, and at the rates, set forth in the
Schedule to the Central Excise Tariff Act,
1985:
Provided that the duties of excise which
shall be levied and collected on any excisable
goods which are produced or manufactured,-
(i) in a free trade zone and brought to any
other place in India; or
(ii) by a hundred per cent export-oriented
undertaking and allowed to be sold in
India.
shall be an amount equal to the aggregate of
the duties of customs which would be leviable
under section 12 of the Customs Act, 1962 (52
of 1962), on like goods produced or
manufactured outside India if imported into
India, and where the said duties of customs
are chargeable by reference to their value; the
value of such excisable goods shall,
notwithstanding anything contained in any
other provisions of this Act, be determined in
accordance with the provisions of the Customs
Act, 1962 (52 of 1962) and the Customs Tariff
Act, 1975 (51 of 1975).
Explanation 1. \027 Where in respect of any
such like goods, any duty of customs leviable
under the said section 12 is leviable at
different rates, then, such duty shall, for the
purposes of this proviso, be deemed to be
leviable under the said section 12 at the
highest of those rates.
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Explanation 2. \027 In this proviso, -
(i) "free trade zone" means the Kandla Free
Trade Zone and the Santa Cruz
Electronics Export Processing Zone and
includes any other free trade zone which
the Central Government may, by
notification in the Official Gazette, specify
in this behalf;
(ii) "hundred per cent export-oriented
undertaking" means an undertaking
which has been approved as a hundred
per cent export-oriented undertaking by
the Board appointed in this behalf by the
Central Government in exercise of the
powers conferred by section 14 of the
Industries (Development and Regulation)
Act, 1951 (65 of 1951), and the rules
made under that Act.
We also quote hereinbelow the exemption notification No.
2/95-CE:
"GENERAL EXEMPTION NO. 55
Exemption to all excisable goods produced
in 100% EOU, FTZ, EHTP or STP units when
sold in India- In exercise of the powers
conferred by sub-section (1) of section 5A of
the Central Excise and Salt Act, 1944 (1 of
1944), the Central Government, being satisfied
that it is necessary in the public interest so to
do, hereby exempts all excisable goods
(hereinafter referred to as the said goods)
specified in the Schedule to the Central Excise
Tariff Act, 1985 (5 of 1986) and produced or
manufactured in a hundred percent export
oriented undertaking or a free trade zone or an
Electronic Hardware Technology Park (EHTP)
unit or a Software Technology Parks (STP) unit
and allowed to be sold in India under and in
accordance with the provisions of sub-
paragraphs (a), (b), (c) and (d) of paragraph 9.9
or of paragraph 9.20 of the Export and Import
Policy, 1 April 1997 - 31 March 2002, from so
much of the duty of excise leviable thereon
under section 3 of the said Central Excise Act
as is in excess of the amount calculated at the
rate of fifty per cent of each of the duties of
customs, which would be leviable under
section 12 of the Customs Act, 1962 (52 of
1962) read with any other notification for the
time being in force issued under sub-section
(1) of section 25 of the said Customs Act on
the like goods produced or manufactured
outside India if imported into India:
Provided that the amount of duty payable
in accordance with this notification in respect
of the said goods shall not be less than the
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duty of excise leviable on the like goods
produced or manufactured outside the
hundred per cent export-oriented undertaking
or free trade zone or Electronic Hardware
Technology Park (EHTP) unit or Software
Technology Parks (STP) unit which is specified
in the said Schedule read with any other
relevant notification issued under sub-rule(1)
of rule 8 of the Central Excise Rules, 1944 or
sub-section (1) of section 5A of the said
Central Excise Act, as the case may be:
Provided further that nothing contained
in the above proviso shall apply to the goods
which are chargeable to nil rate of duty
leviable under section 12 of the Customs Act
read with any other notification for the time
being in force issued under sub-section (1) of
section 25 of the said Customs Act.
Provided also that the exemption under
this notification shall not be availed until the
Assistant Commissioner is satisfied that,-
(i) in the case of the said goods other
than software, rejects, scrap, waste or
remnants:-
(a) such goods being cleared for home
consumption are similar to the goods which
are exported or expected to be exported from
the unit during the specified period of such
clearances in terms of the Export-Import
Policy, 1st April, 1997 \026 31st March, 2002;
(b) the value of such goods being
cleared for home consumption from the unit
specified in column (2) of the Table hereto
annexed, does not exceed the percentage limit
of the entitlement as specified in the
corresponding entry in column (3) of the said
Table for such clearance, calculated with
reference to the total value of production of
goods which are identical in all respects to
those under clearance;
(c) The balance of the production of the
goods which is identical to such goods under
clearance of home consumption, is exported
out of India or disposed of in terms of
paragraph 9.10 of the said Export and Import
Policy,
(ii) In the case of the said goods being
software cleared for home consumption:-
(a) the value of such software cleared
during the period specified does not exceed
twenty-five per cent of the total value of
production of the software in the unit;
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(b) the balance of the production
excluding the value cleared as referred to in
sub-clause (a) is exported out of India or
disposed of in terms of para 9.10 of the said
Export and Import Policy,
(iii) in the case of the said goods in the
nature of rejects, scrap, waste or remnant
being cleared for home consumption, the value
of such goods is within the percentage limits
fixed for the unit in terms of the Export and
Import Policy 1.4.1997 \026 31.3.2002.
Explanation. \026 For the purpose of this
notification, the expression, -
(1) "Export and import Policy, 1 April, 1997 \026
31st March, 2002" means the Export and
Import Policy, 1 April, 1997 \026 31 March, 2002
published by the Government of India under
the Ministry of Commerce notification No.
1/1997-2002, dated 31st March, 1997.
(2) "Electronic Hardware Technology Park
(EHTP) unit" means a unit established under
and in accordance with Electronic Hardware
Technology Park (EHTP) Scheme notified by
the notification of the Government of India in
the Ministry of Commerce No. 5 (RE-95) 92-97,
dated 30th April, 1995 and approved by an
Inter-Ministerial Standing Committee
appointed by the notification of the
Government of India in the Ministry of
Industry (Department of Industrial
Development) No. S.O. 117(E), dated the 22nd
February, 1993;
(3) "Software Technology Parks (STP) unit"
means a unit established under and in
accordance with Software Technology Parks
(STP) Scheme notified by the notification of the
Government of India in the Ministry of
Commerce No. 4/(RE-95)/92-95, dated 30th
April, 1995 and approved by an Inter-
Ministerial Standing Committee appointed by
the notification of the Government of India in
the Ministry of Industry (Department of
Industrial Development) No. S.O.117(E), dated
the 22nd February, 1993.
S.
No.
Unit
Percentage limit of
entitlement for
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clearances for home
consumption
(1)
(2)
(3)
1.
2.
3.
Units in the agriculture,
aquaculture, animal
husbandry, floriculture,
horticulture, pisciculture,
poultry and sericulture
sectors
Units engaged in the
manufacture of electronic
hardware products which
achieves,-
(a) net foreign exchange
earnings as a percentage
of exports less than ten
per cent
(b) net foreign exchange
earnings as a percentage
of exports of ten per cent
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or more but not exceeding
twenty five per cent
(c) net foreign exchange
earnings as a percentage
of exports exceeding
twenty five per cent
Other Units
50 per cent
NIL
Upto thirty per cent of
the production in value
terms of the electronic
items, including
components
manufactured in the
unit.
Upto forty per cent of
the production in
value terms of
electronic items,
including components
manufactured in the
unit.
25 per cent"
(emphasis supplied)
For the following reasons, we find merit in this civil
appeal. Firstly, on examination of the Exim Policy we find that
the said Policy as a rule stated that every 100% EOU was
obliged to manufacture or produce from duty free imported
raw materials capital goods etc., finished products/ articles
and as a rule every 100% EOU was obliged to export its entire
production and earn foreign exchange. This was what was
called as Physical Exports. However, this rule had certain
exceptions. In this civil appeal, we are concerned with DTA
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sales. As an exception, there existed two types of DTA sales
under the said Policy, namely, DTA sales against rupee and
DTA sales against foreign exchange which was similar to
physical exports. This latter category was known as "Other
Supplies in DTA". Therefore, to put it in brief, "Other Supplies
in DTA" was equated with physical exports which, as stated
above, was the general rule for 100% EOU. In other words, the
general rule was physical exports and other supplies in DTA
was equated to physical exports. This equation was necessary
because other supplies in DTA gave certain benefits to the
economy like preservation of foreign exchange, import
substitution, savings of transportation costs and to provide
competitiveness and level-playing field for Indian exporters.
According to the Revenue, the expression occurring in the
second proviso to Section 3(1), namely, "allowed to be sold in
India" was applicable only to DTA sales against rupee and not
DTA sale against foreign exchange. In this civil appeal, we are
concerned with the law as it stood prior to 11.5.2001. In our
view, DTA sale against foreign exchange was covered by the
expression "allowed to be sold in India" and, therefore, such
sale fell under the proviso to Section 3(1) of the 1944 Act. In
the circumstances, the duty liability of the assessee (appellant
herein) was required to be determined after allowing to it the
benefit of notification No. 2/95-CE. That notification granted
partial exemption to the assessee from duties in respect of
goods manufactured in 100% EOU and allowed to be sold in
India under para 9.9 (a), (b), (c) and (d). Once DTA sales
against foreign exchange are held to be covered by the proviso
to Section 3(1) of the 1944 Act then the whole difference
between DTA sales against rupee and DTA sales against
foreign exchange, for the purposes of notification No. 2/95-CE
would stand eliminated. This would be, however, subject to
the compliance of other conditions of notification No. 2/95-CE.
Therefore, in our view, the Tribunal had erred in relying on
para 9.9(b) for limiting the benefits of exemption under
notification No. 2/95-CE by imposing a new condition to the
effect that the benefits would be admissible only in respect of
50% of such DTA sales against foreign exchange. Secondly,
once the permission was granted by the competent authority
under the Exim Policy to make DTA sales against foreign
exchange, the assessee (appellant herein) was entitled to the
benefit of concessional rate of duty under notification no.
2/95-CE. If DTA sales against rupee were allowed the benefit
of notification No. 2/95-CE, then DTA supplies against foreign
exchange, which were at par with physical exports, cannot be
denied the same benefits and they cannot be subjected to a
higher duty. Thirdly, once DTA sales against foreign exchange
are covered by the above expression "allowed to be sold in
India", all issues relating to calculation of the duty payable in
terms of notification No. 2/95-CE will have to be decided
afresh by the adjudicating authority and accordingly, we
hereby remand the matter back to the Commissioner for
calculating the duties payable by the assessee in terms of
notification No. 2/95. The Commissioner will calculate the
duties accordingly as hereinabove mentioned. Lastly, we are of
the view that there is no fundamental difference, as far as the
exemption notification No. 2/95-CE is concerned, between
DTA sales against foreign exchange and DTA sales against
rupee. Once DTA sales against foreign exchange fall within the
expression "allowed to be sold in India", the Department
cannot deny to such sales the exemption under notification
no. 2/95-CE, since DTA sales against foreign exchange will
come under para 9.9. According to the Tribunal, the entire
supply to DTA against foreign exchange was not entitled to the
benefit of notification No. 2/95-CE but only 50% of the supply
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was eligible for the said relief. We do not see any basis for
introduction of this condition in notification No. 2/95-CE. It
appears that this condition is brought in on the ground that
para 9.9 (b) refers to DTA sales up to 50% of the FOB value of
exports. In our view, the Tribunal had erred in relying on the
said para 9.9 (b) for limiting the benefits of exemption under
notification No. 2/95-CE in respect of 50% of DTA sales
(supplies) against foreign exchange. One cannot ignore the fact
that DTA sales in foreign exchange provides for better money
value as compared to DTA sales in rupee. Therefore, if DTA
sales against rupee are allowed the benefits of notification No.
2/95-CE, DTA supplies, which are at par with physical
exports, cannot be denied the same benefits.
For the above reasons, we do not wish to examine the
larger issue canvassed before us on behalf of the assessee
(appellant herein). We are confining this judgment to the
arguments which were advanced by the appellant herein
before the Tribunal.
Accordingly, the civil appeal filed by the appellant herein
stands allowed. The impugned judgment of the Tribunal is set
aside and the matter is remitted to the Commissioner for
calculation of duties payable in terms of notification
no. 2/95-CE, as interpreted hereinabove.
The appeal stands allowed with no order as to costs.
Civil Appeal No. 3237 of 2002
[Commissioner of Central Excise v. M/s Virlon Textile Mills]
In view of our judgment in Civil Appeal No.570 of 2002
(supra), this civil appeal filed by the Department stands
dismissed with no order as to costs.